Severing the cycle

As noble as the intention of teaching financial literacy to the impoverished may be, it remains somewhat challenging to teach those without money just how to manage it. And yet, in the absence of money management skills, those without money are often forced into a downward cycle of poverty and missed opportunity. Sadly, it is the impoverished in developing countries who are at a greater disadvantage due to lack of general education, fewer resources and challenging socio-economic conditions. But recent research into the psychology of the destitute has breathed new life into the instruction of financial literacy and how it can more effectively weaken the noose of privation.

At the heart of financial literacy is the concept of saving and delayed gratification. But for those who exist at the base of the economic pyramid, building savings and growing assets are as foreign as flat whites and skinny lattés. There is no excess in an existence where one lives from hand-to-mouth, and the concept of saving for those living below the bread-line is a completely outlandish one. Lazy, unmotivated and slothful are terms often used, mostly unfairly, to describe the impoverished, but for those who were not born into dearth, the true meaning of poverty is completely misunderstood. Contrary to what many people believe, poverty is not a result of human indolence, but is in fact a multi-faceted and complex phenomenon that can no longer simply be defined as a lack of money.

In terms of behaviour, those who are impoverished tend to engage in more self-destructive habits and in general don’t plan for the future. Those living on or below the bread-line demonstrate less control and give in to instant gratification more easily. Whilst conservative thinkers believe that it is this destructive behaviour that results in poverty, more liberal thinkers believe it is poverty that causes the detrimental behaviour. However, more recent research introduces a completely new concept – that scarcity reduces one’s cognitive capacity which is needed for problem solving. Worrying about money places one into a dark ‘tunnel’ and reduces ones executive control which governs planning, impulses and will power. The bad decisions of those trapped in poverty appear to be as a result of decreased capability to make the right decision, which may well explain why financially burdened individuals appear to make habitually illogical financial decisions which deepen their financial woes.

Severe financial problems and ongoing scarcity can create enormous amounts of stress for the financially burdened. This, in turn, leads the brain into a tunnel where the only focus is solving the financial emergency of the moment. Tunneling causes people to borrow money in order to deal with pressing financial problems – and borrowing is an expensive past-time for those who do not have money. Further, ‘borrowing money’ by paying bills late has knock-on effects such as reconnection fees, penalties and bad credit ratings. But, due to the anxiety and stress caused by the pressing financial emergency, a financially burdened person is unable to process these consequences which lie outside of his tunnel. In simple terms, dealing with poverty takes up so much mental energy that one would have access to less brain power for making decisions and taking steps to overcome financial difficulties. As a person becomes more financially burdened, they tend to make decisions that unfortunately perpetuate their fiscal hardships, leading to what we know is a sad cycle of poverty.

Instead of cognitively taxing a person’s brain – which is already overloaded with numbers, debt calculations and how to pay the next bill – financial literacy programmes need to engage with people at a level that helps relieve their anxiety as opposed to adding to their already over-burdened brains. Providing money mentors for those who are financially strained is an excellent method of providing a rational sounding board for financial decisions, especially when trapped in a tunnel of fiscal confusion. This can be supported by ongoing workplace counselling and the provision of alternative borrowing options that replace the portentous “pay day” loan.

Whilst the focus of many financial literacy interventions is targeted at those who are already debt-laden and financially burdened, the true magic of financial literacy is revealed when unleashed on young adults. As opposed to debt-reduction instruction, financial literacy amongst the youth needs to engage them at a level of creativity, entrepreneurship and individual talent – instilling in them the belief that it lies within them to choose a path different from their parents. Having been raised to live from hand-to-mouth, their financial instruction must involve breaking down confining myths they’ve been born to believe. Celebrating the spirit of entrepreneurship should be an integral part of financial literacy as it creates an avenue for children to visualise a future using their God-given passion or talent. Young adults should delight in the knowledge that entrepreneurship is an alternative to life-long employment and that is the right of all human beings, not just those born to money.

Financial literacy is so much more than numbers and debt management. It holds within it the power to restore personal dignity and untap extraordinary human potential. Poverty (and its co-dependent evils of violence, drugs, abuse and disease) is something that impacts the life of every human being regardless of their financial status, and surely is an enemy worth destroying. As Nelson Mandela once said, “Poverty is not an accident. It is man-made and can be removed by the actions of human beings.”